Friday, 20 January 2017

Step right up, now everyone’s a winner, bargains galore.

Thank goodness for Donald Trump
and Boris Johnson. There was I, worried that leaving the European Union might
in some way be bad for our economy, workers’ rights and public sector, when
they come along and show me that everything is going to be OK. Of course it is
not just the US. Apparently, countries are queueing up to do trade deals with
us. We now thankfully have some greater clarity on what Theresa May plans for
her brexit strategy. So, what can we take from her announcement yesterday? And
how bright is the future looking for us? Can we get ready for a massive influx
of trade we don’t currently have? Is the prospect of a Global Britain better
than the prospect of a “Shared Britain” (now removed) or a “Red, White and Blue
Brexit” (now removed) or is it just another meaningless slogan?

Really, we need to understand
from the speech what we are potentially losing compared to what we might gain.
That is the only way we can judge whether we are looking at a net positive or a
net negative. This was the most important speech that the Prime Minister has
given since we voted for her to be our leader. Only joking of course, we live
in a parliamentary democracy where elected representatives are chosen and
entrusted to make our decisions for us. Well apart from THAT decision
obviously. So, the most important speech since her party voted for her to be
party leader and therefore Prime Minister. Only joking, there was no vote for
her. So, the most important speech she has given since 35,000 in the borough of
Maidenhead voted for her (that’s right Americans, you think you have problems).

I am going to focus purely on the
aspects relating to trade and the economy. There was actually some good stuff
in there, relating to how the process will run, and also massively important
areas around immigration and nationality, borders and governance. But that will
have to be part of another blog. So what did we learn? Well the key points were
these:

·All existing rules and regulations of the EU
will become British Law and workers’ rights will be protected, then will “keep
pace with the changing Labour Market”

·We will leave the single market, and the customs
union then “pursue a bold and ambitious Free Trade Agreement” with the EU

·We might pay to be a part of “specific European
programmes”

·If we don’t get the deal we want with the EU, we
will trade with them without a trade agreement

·We will seek out new trade deals with other
partners that we don’t currently have in place

Keeping existing rules and regulations, and workers
protections

So,
depending on your point of view, keeping existing safety and consumer laws is a
good thing or a bad thing. It will mean that we can continue to export to mainland
Europe because our goods and services will be comparable. But it might also
mean that we are held to a higher level of regulation than say US or Chinese
manufacturers. Therefore, this could make our products uncompetitive on a
global market. So this really depends on whether we get a trade agreement with
the EU.

More
worryingly, is the specific language used around workers’ rights. This should
be a massive big warning sign to everybody who is employed in the UK. Over the
last 6 years the Tories (and their coalition partners) have overseen the
stripping away of workers’ rights, and have resisted every opportunity to improve
them. For example, even at the height of the furore over zero hours contracts,
the government did nothing. Coupled with that our rights to strike have been
eroded, weakening our bargaining power with companies. And senior members of
the government are openly talking about banning the use of strikes across
industries.

Mrs May
could have said that workers’ rights would be improved upon, or strengthened.
But the language is purposefully specific. “Keeping pace with the changing
Labour Market”. Well, if we look at how the Labour market is changing, more
people are being put in to roles where their employers can pretend they are
self-employed; employers can give up any sort of responsibility through the
“gig” economy; zero hours contracts will become more prevalent; trade unions
will be downgraded and weakened at every turn; pensions agreements will no
longer be stuck to by employers whilst taxpayers bail out pensions funds.
Basically, if you are employed, then this is the start of a bonfire of what
rights you currently have. If you are applauding this speech, you are either an
employer yourself, or not paying attention. Perhaps somebody could remind me,
when we voted for the UK to leave the European Union, where we also voted to
give up our working rights to Sir Philip Green and Mike Ashley? I obviously
ticked that box without realising.

Leaving the Single Market and Customs Union, getting a
trade deal with Europe instead, paying for access

It is
probably worth, as a starting point, understanding what our trade deal within
Europe currently means. Firstly, it is worth stating that it is probably the
most comprehensive, invasive and wide-ranging multi-lateral trade agreement in
the world. It includes everything from free trade (meaning we trade our goods
free from tariffs being applied by other countries), customs union (meaning we
all apply the same tariffs to goods coming from outside our deal), free
movement (of services, capital and resource ie people) and a level of political
union too. It covers almost every aspect of trade and commerce, industry and
services, import and export. The effort to split ourselves out from it is on a
scale unprecedented and untried. It is not simply rhetoric to say it is of the
scale that countries leaving the USSR and Eastern-bloc felt during the early
90s.

So we
would be leaving, with great difficulty and cost a free-trading bloc of
450 million people in 27 states (once you take us out of the official figures).
It has GDP of US$13tn (again once you take us away from the published figures).
It is 41km away from us at the closest point. Those are the really key
considerations in any trading deal we want to do: how many individual consumers
are there, how wealthy is it, how far away is it, and what tariffs would we
expect. It is worth also stating that given the depth and breadth of the
negotiations that will be needed, this will (you would hope) require a great
deal of considered and careful negotiation. We currently have no experience of
trade negotiations, given that we haven’t had to for about 40 years. It seems a
reasonable assumption that what experience we can muster together will be
focussed on this deal. Two years of effort to LEAVE that free trade deal.

Of
course, it is possible that we could end up with an even better trade deal.
However, it is highly improbably. By its very nature, if we are choosing to say
to a trading bloc that have grown together “we want to trade with you, but
don’t wish to pay in to your structural costs” then it is only reasonable to
assume we will get a worse deal than full membership. Even Theresa May accepts
that. Hence why the Prime Minister and others have been warming us up to the
idea that we will still have to pay something to continue to trade freely in
certain markets. I think it is fair to assume this will include the Motor
industry (if not, then what the hell have we promised Nissan?) and financial
services (given it is our biggest single industry). Of course, that gives us
the question of what will the cost be? How much will we have to pay for access?
Not only that, does it mean any industry which isn’t beloved of the Tories
(Steel, manufacturing, non-financial services) should now expect tariffs to
start to affect their business. So there we have it, a deal where we still pay
in (when it suits the Tories) and everybody else has their business negatively
impacted.

Not
only that, but what if we start imposing our own tariffs on European goods?
Well, that will lead to massive instantaneous inflation, whilst at the same
time our economy is getting worse. We had this in the 1970s – and the term
which was coined was stagflation – a stagnant economy whilst prices rise. It
was a horrific time. If you are too young to remember it be grateful, then ask
somebody who was around how it felt.

No deal is better than a bad deal, trade deals with other
parties

Of
course, we could choose to have no trade deal at all with Europe. However, just
the most cursory glance at this shows how completely stupid and damaging this
would be. This would mean that we would immediately start trading with ALL of
the European Union at WTO Tariff rates. In effect every single item that we
export to Europe would immediately be less competitive, and therefore we would
either have to sell less OR sell them more cheaply. The idea that no deal is
better than a bad deal is complete hogwash – and everybody knows it. God even
to export Oxygen to the EU we would have to pay a tariff of 5% - and they
breath the bloody stuff (yes, I know, thanks). So this idea that we will go
with No Deal is never going to happen. Besides which, in all honesty both
parties want to get a deal. It is in their interest as well. It is entirely a
PM trying to sound tough for the UKIP-leaning voters in her own party. It is
simply within our interest to achieve some deal with Europe (popn 450m, GDP
US$13tn, dist 40km) – and it is theirs to do a deal with us (popn 65m, GDP
US$3tn, dist 40km).

What
about other deals? We are told by Boris Johnson that countries are “queueing
up” to do a trade deal with us. Well, the first consideration is – why aren’t
we trading with them currently? If these countries are so desperate to get a
trade deal with us, why is that? Well, we already do trade with many of them.
But it is at a lower level than perhaps we could. Therefore, any belief that
this will lead to a massive influx of NEW trade is again erroneous. What it
will do is make trade easier and therefore give some lift to our global trade
levels. It might also (if we remove import tariffs) lead to consumers paying
less for certain goods. It is way beyond me to be able to state with any
certainty what scale the impact would be. But it would need to be very high
indeed to offset any major losses of trade with the EU. I am going to leave the
US to one side for a moment, but still, let’s pick out some of the options
which do look like “live picks” ie countries that are talking about trading
with us:

Country

Population

Size of economy

Distance

Comments

EU

450m

US$13.1tn

41km

Iceland

0.3m

US$0.016tn

1,894km

India

1,300m

US$8.72tn

7,194km

New Zealand

4.7m

US$0.174tn

18,500km

Australia

24m

US$1.2tn

17,000km

Canada

36m

US$1.5tn

5,700km

Ghana

27m

US$0.121bn

4,800km

Mexico

120m

US$2.2tn

9,000km

South Korea

50m

US$1.4tn

9,000km

Total

1,562m

US$15.3tn

9,136km average

So, if
the worst happened and we stopped all trade with the EU (which no-one is
suggesting, to replace it we would need to trade with these 8 separate
economies to get a trading block of the same size. Ignoring the fact that on
average that would mean sending goods 45 times further on average to sell them.

To put
it another way, our trade with the EU accounts for 45% of our exports. If we
lost a quarter of that export trade – on our doorstep – we would need to boost
our sales internationally to non-EU countries by 11%. Unfortunately, our trade
with international neighbours is already at record levels for us. What else are
we going to sell – at a competitive price after sending it an extra 9,100 km? The
very desperately sad thing is, we are already a successful trading nation. Is
it really possible that not being part of a customs union with the EU is going
to boost our trading with every we currently trade with across the board by
over 10% BEFORE the end of the current deal with the EU in 2 years’ time?

Who is
going to negotiate these trade deals? Everyone with experience or knowledge
will be working on the EU deal? Or should we leave that to Boris “let’s joke
about the Nazis” Johnson? Genuinely? Of course, we have the trade deal to look
forward to with the US. After all, we have been promised a trade deal by the
President-Elect, a man who never goes back on what he says. Well, he has
already threatened to pull out of NAFTA (a free trade deal), and put 35% import
tariffs on goods from China and Mexico – 2 of their biggest trading partners
and very strong economies. If Donald Trump is looking to trade on those terms
with others, why would we believe we would get anything more beneficial?

Everything’s rosy

There
is no hard evidence to say that is all impossible. It may well be that against
all odds the government manage to deliver. But for that to happen we would need
a massive turnaround in fortunes, in abilities, in industry, in trade patterns
and in the views of our own government. At the same time we would need the EU
to be kind to us in any future trade deal. Put quite simply, the potential
risks are much greater than the opportunities at the moment. I would love to be
wrong about this – and I am often wrong. But I see no analysis which suggests
anything other than this stark conclusion – by leaving the single market we are
throwing away access to a strong market on a really good deal for the
possibility of access to less accessible markets, with less good deals. This
can only be bad for our economy. 52.1% of people voted for Brexit. But how many
voted for an almost certain worsening of our economy, job losses, rights and
protection losses, uncertainty and a weaker economy?